NAPFA Changes Membership Criteria

The National Association of Personal Financial Advisors is
tightening its membership rules and will no longer allow members to own even a
small stake in any financial firm that charges commissions.

The association, comprised of fee-only financial planners,
notified its approximately 2,500 members in an e-mail Thursday that it was
rescinding the provision that allowed them to own up to 2% of a firm that
generates transaction-based revenue.

The change resolves a difference between NAPFA's fee-only
definition and the one outlined in Certified Financial Planner Board of
Standards Inc. rules. The CFP Board says financial advisers are fee-only if
they only charge fees for their services and are not affiliated with a firm
that charges commissions, a rule that has caused much controversy.

“We're really trying to
eliminate a discrepancy between our membership standard and [the CFP Board's]
rules of conduct,” NAPFA chief executive Geoffrey Brown said in an interview.
“This change in alignment is really about our members' commitment to providing
financial services in a manner that is open, clear and easily understandable
for consumers. The 2% exception is confusing.”

The CFP Board backed NAPFA's decision.

“NAPFA is a leader in investor protection and this change reflects
their commitment to putting consumers first with a focus on transparency along
with clear and understandable disclosure,” Ray Ferrara, CFP Board chairman,
said in a statement. “We look forward to continuing to work with them as a
partner in the Financial Planning Coalition to advance the financial planning
profession and ensuring Americans have access to competent and ethical CFP
professionals.”

With NAPFA's requirement that its members hold the CFP credential,
it made sense for NAPFA to remove the conflict between its membership standard
and the CFP fee-only rules, said Michael Kitces, a partner and director of
research at Pinnacle Advisory Group.

“While this new alignment is positive, at the same time I hope
NAPFA will continue to push for action with the CFP Board to resolve the
fundamentally flawed compensation definitions that remain in use, for the
betterment of their members and the profession at large,” Mr. Kitces wrote in
an email.

An adviser who is facing the revocation of his NAPFA membership
said that the organization is sidestepping a chance to shape the compensation
debate.

“This was a great opportunity for NAPFA to take the lead on
defining what fee-only financial planning is,” said Rick Kahler, president of
Kahler Financial Group. “It appears they've decided to accept the CFP Board's
definition of fee-only. Their definition is one I don't feel is entirely
accurate. There are lots of unintended consequences.”

“I'm pretty sad and feel some anger about that,” Mr. Kahler said.
“I was accepted into membership with [NAPFA] fully being aware of my minority
ownership of the family real estate firm.”

Dave O'Brien, owner of O'Brien Financial Planning, served on the
NAPFA compensation task force that recommended dropping the 2% exception. He
said the goal was to provide clarity for clients.

“Anything we can do to really, really simplify things for
consumers so they can understand who is getting paid by whom for what supports
the goal of helping the consumer make informed choices,” Mr. O'Brien said. “A
confused consumer is not what we want in financial services.”